Global stocks traded mixed, with oil prices remaining elevated as the conflict involving Iran continues to disrupt energy supplies. This surge fuels concerns over inflation and interest rates. Oil prices are more than a third higher than at the start of the conflict.
On Wall Street, the Dow Jones Industrial Average saw a modest rise, while the S&P 500 was little changed and the Nasdaq Composite experienced a slight dip. Analysts suggest market exhaustion after recent aggressive selling is a factor, with oil trading dictating market direction.
Europe's STOXX 600 index dropped, tracking its largest two-week decline in a year. MSCI's global stock gauge also fell.
The U.S. dollar has emerged as a safe-haven asset amid the market turmoil, strengthening against most other currencies and positioning for its second consecutive week of gains.
Brent crude oil futures approached $101 per barrel, and West Texas Intermediate crude traded near $96 per barrel. Both have significantly increased from the start of the year. Traders are assessing the duration of these supply disruptions.
Rising inflation expectations are prompting markets to adjust their outlook on central bank policies. Traders now anticipate fewer interest rate cuts from the Federal Reserve this year compared to previous forecasts. Two-year Treasury yields reached a six-month high.
The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures index, rose as expected in January. Meanwhile, U.S. economic growth slowed more than initially reported in the fourth quarter.
Economists note that rising oil prices are impacting corporate margins, inflation expectations, and rate-cut prospects, creating market volatility. Sinking optimism about Fed rate reductions, coupled with cost pressures, is weighing on traditional safe havens like silver, gold, and government debt.
Investor focus now shifts to upcoming policy meetings from the Federal Reserve, Bank of Japan, European Central Bank, and Bank of England, with most expected to hold rates steady. The Reserve Bank of Australia is anticipated to hike rates.
In currency markets, the euro declined against the dollar. The Japanese yen reached its weakest level against the U.S. dollar since July 2024, prompting warnings from Japan about potential intervention. Gold prices also saw a weekly decline.